The cooling housing market is stripping more equity from homeowners in Washington than in any other state in the country.
On average over the last year, Washington homeowners lost about $74,300 in equity, a measure of the difference between how much a home is worth and how much the owner owes on the mortgage, according to the real estate data company CoreLogic. That 18% decline marked the largest drop in the country from the first quarter of last year to the first quarter of 2023.
Even so, only a small share of homeowners here are underwater.
Washington homeowners owe more than their property is worth on just 2% of mortgages, in line with the nationwide rate, according to CoreLogic. That marks a slight increase from previous years, when the share of underwater mortgages in Washington hovered around 1.5%.
In the Seattle area, even fewer homeowners owe more than their homes are worth: Just 0.7% in April, according to the data firm Black Knight.
That’s a larger share of at-risk homeowners than in recent pandemic years, but still far below the crisis levels following the 2008 housing market crash. In April 2011, more than a third of Seattle-area mortgages were underwater.
Homeowners can typically offset dips in equity if they wait to sell until the market picks back up. The loss is more concerning for those who bought homes at the height of the red-hot pandemic market and are forced to sell soon because of job loss, divorce or other factors.
The recent decline in equity reflects the roller-coaster market of the last few years: Home values climbed at a record-breaking pace, then interest rates shot up, the market rapidly cooled and home prices dropped. But home values were so high that they could fall by tens of thousands of dollars without a flood of homeowners falling underwater.
Even though Washington homeowners lost an average of more than $74,000 in equity over the last year, they gained $116,000 as home prices soared the prior year, CoreLogic data shows.
“There’s been just an incredible amount of gains … since the onset of the pandemic,” said CoreLogic Chief Economist Selma Hepp.
On top of that, homebuyers in pricey and competitive markets like Washington typically make higher down payments, giving them more equity than others as soon as they become homeowners, said Redfin Senior Economist Sheharyar Bokhari.
Even among people who bought Seattle-area homes between January 2021 and September 2022, a window including some of the hottest moments in the local market, just 1.6% are underwater, according to Redfin.
“I suspect the ones who bought recently in the frenzy are probably the wealthier [buyers] who had a lot of money to put down,” Bokhari said. “That’s how they won those bidding wars, and that’s why there’s not a lot of them who are negative just yet.”
The Seattle-area housing market picked up steam this spring, but continues to see less activity and lower prices than a year ago. The median King County home price in May stood at $910,000, down 9% from a year ago, according to the Northwest Multiple Listing Service.
